Silver shines bright in 2025.

Silver prices on the Multi Commodity Exchange (MCX) climbed past the key Rs 2 lakh per kg mark on Friday, reclaiming the level after a brief dip in early trade. Market participants say the metal could extend its rally, supported by strong global cues, sustained industrial demand and a weak rupee.

Gold/silver ratio

According to Axis Securities, one of the most striking signals of silver’s changing market dynamics is the collapse of the Gold Silver Ratio. Historically, the ratio was used as a proxy to understand investors' risk appetite for the metal. But now, the ratio has moderated sharply from life-time highs near 105 to below 70 in 2025.

Axis Securities noted that this compression reflects silver’s clear relative outperformance. Unlike earlier cycles where silver surged as a leveraged play on gold, the current rally is driven by the white metal's fundamentals.

“This divergence suggests that the market is beginning to price silver primarily as a critical industrial input rather than solely as a monetary hedge,” Axis Securities said, adding that the market is now competing for metal on two fronts: industrial users as well as investors.

Supply constraints fuel gains

On the supply side, silver faces a chronic bottleneck. Silver production has remained stagnant at around 810 million ounces over the past five years ago, despite higher prices.

The reason lies in silver’s by product economics. Nearly 70 to 80 percent of silver output comes as a by product of lead, zinc and copper mining. This makes silver supply inherently price inelastic, as miners cannot increase silver output without significantly impacting base metal markets.

Scrap supply has also failed to fill the gap. Secondary supply has not risen meaningfully, keeping total available supply capped below one billion ounces. According to the Silver Institute, total mined silver supply in 2025 is expected to remain roughly flat at around 813 million ounces, with recycling unable to meaningfully bridge the deficit.

"In 2026, we expect the deficit to increase further on account of recycling not providing additional supply as because of high prices in silver, the recycling flow of silver has also decreased," said Bhavik Patel, Senior Analyst, Tradebulls Securities.

Industrial demand surges to highs

Demand growth for silver has been relentless. "A persistent supply deficit, especially due to unprecedented industrial demand from the solar energy and EV sectors, underpins the market," said Aamir Makda, commodity analyst, Choice Broking,

Demand from the solar photovoltaic sector has more than doubled in four years, rising from 94.4 million ounces in 2020 to 243.7 million ounces in 2024. Solar alone accounted for nearly 21 percent of total silver demand last year.

Bhavik Patel said, “The market woke up in 2025 to the growing recognition about silver’s industrial role, particularly in solar energy, electrification and data centre infrastructure, which leaves demand relatively price inelastic in the short term.”

He added that the build out of artificial intelligence infrastructure is another powerful demand driver. “Tech companies are expected to spend $700 billion in capex as they build out AI infrastructure. However, this is not going to happen without silver, as it plays a key role in AI hardware.”

Low inventory

Compounding the supply demand imbalance is a growing inventory squeeze. Fears of potential US import tariffs have triggered a global reshuffling of physical metal, pulling silver toward US markets.

COMEX futures have traded at persistent premiums to London spot prices, encouraging arbitrage flows that have drained inventories from London, the world’s main liquidity hub, into US vaults.

Patel noted that silver inventories across exchanges are being stretched thin. “We had already seen shortages in physical silver in LME around September. Now in the Shanghai Global Exchange, silver inventory is at a decade low. Silver is clearly moving across exchanges to plug shortfalls.”

Outlook remains shiny

Axis Securities believes silver has decisively broken out of a decade long bottoming structure. A sustained monthly close above $67 could open the door to a multiyear uptrend toward $76 to $80. Investment inflows into silver ETFs and futures, along with technical breakouts that trigger further buying, accelerate the rally, added Makda.

While consolidation near $65 remains possible, the broader structure stays bullish as long as the $50 level holds. In the domestic market, Axis sees any correction toward Rs 1,70,000 to Rs 1,78,000 as a staggered accumulation opportunity, with a target of around Rs 2,40,000 by 2026.

“Silver is quietly outperforming gold because of structural deficit conditions and rising demand from renewable energy and industrial sectors,” Patel said, while Makda added that the current momentum is likely to persist, "leading to continued outperformance and an expected rally in Silver during 2026."

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